In an effort to digitalize the overall treasury processes of a company, several banks have looked at partnering with e-wallet providers to eliminate physical cash from corporate transactions. Whether it be paying a company's farmers or collecting from customers, an e-wallet solution aims to reduce physical cash handling costs and improve reconciliation within the organization.
Despite the buzz and excitement around the emergence of e-wallets, they still play a small part in the overall non-cash payment ecosystem. That's based on the recently released World Payments Report 2018, which estimates that e-wallet transactions make up only 8.6% of global non-cash transactions. In 2016 alone, there were around 41.8 billion transactions conducted on an e-wallet system.
With such a low rate of penetration why have some banks jumped the gun when it comes to working with e-wallet companies?
This appears to be the case in some markets where governments are heavily pushing industry-wide payment infrastructure networks rather than a particular e-wallet solution. With a focus on encouraging financial inclusion and convenience, markets such as Australia, Hong Kong, Singapore and Thailand have rolled out peer-to-peer systems that allow users to transfer funds among each other using a unique identifier, typically a mobile number or email.
The launch of these government-backed networks could dampen the prospects of e-wallet providers and banks collaborating with them. Acting as an intermediary between the payor and payee, e-wallets typically are unable to carry out direct debit and deposit between bank accounts, unlike government networks. In other words, individuals using an e-wallet would need to be wary about topping up their wallet before conducting a transaction.
E-wallets also generally lack interoperability - they are not compatible across different systems or products. This becomes cumbersome in markets where there are a number of e-wallets. India, for example, has a series of e-wallets supported by both financial technology and banking operators.
However, in China e-wallets backed by technology giants Alibaba and Tencent have cemented themselves in the domestic payments space. Out of the 41.8 billion e-wallet transactions estimated globally, around 16.3 billion of them were done within China. The popular use of e-wallets is a factor any treasurer or CFO operating in the country needs to prepare for and should consider whether or not their banking partner has connectivity to such wallets.